Main Contractor Discount

JCT Contracts General
1

The Contract is actually ICC but thought this forum best to generate an answer.

A discount of 5% was given to the main contractor to secure a subcontract in respect of four structures.

The nature of the discount (cash, general, punctual payment etc) was not stated in the 3 rd Schedule apart from mentioning the four structures by name and that a 5% discount was to be applied to them. The four structures were also referred to by name in the 1st Schedule

During the progress of the contract the main contractor added another 15 structures as variations to which he did not deduct any discount for over 1 year and 6 months.

In the later stages of the contract there was a change in QS personnel and the new incumbent has now decided to deduct 5% discount from the 15 variation structures as he considers the discount should apply to all variations albeit the main contractor did not issue formal variation orders and came from verbal instruction.

In addition he has also now deducted retention in the amount of 5% from the 15 structures.

The above action has basically pulled the rug from under a small subcontractors feet and put them in a very vulnerable cash situation and just wondered if any of your contributors had any thoughts on where the deduction of discount stands in legal terms.

2 Likes
2

If this was an NEC contract, the cost of the original 4 structures would be irrelevant, as unless both Parties agree any rates or lump sums in an activity schedule/bill of quantities are NOT used. Therefore the compensation event would use Defined Cost to assess the cost and time impact of the additional 15 structures.
This would use the schedule of cost components to build up the quote and then apply their direct fee percentage to this number. Any discounts available in purchasing materials etc should be included within the quote, but there would be no obligation to apply a further discount for multiple additional structures.

3

The Main Contract is ICC and the Subcontract is CECA so I dont think NEC principles are applicable in this case unless I am missing something.

4

Agreed John - they wont apply but given this was asked in the NEC forum I answered it from the perspective as though it was an NEC form of contract. How it would work within ICC I suspect will be down to interpretation and probably even more subjective with that contract I am afraid.